Understanding International Price and Consumption Disparities

This study proposes a new measure of the tradability 120+ commodities based on price dispersion. approach is used to construct indices tradables and non-tradables for 150+ countries. The expenditure share lower richer countries, while relative non-tradables, which plays an important role in determination real exchange rates, higher. Secondly, common-factor (based principal components) introduced compress large volume information prices quantities consumed globally. We find that cross-commodity correlations are higher than consumption. In addition, income responsible 98% variation first component consumption but explains only 24% component. suggests driven primarily by domestic factors, determined factors outside country, along lines Purchasing Power Parity theory.